The Technology and Construction Court (TCC) has ordered a civil engineering firm to obtain collateral warranties from a sub-contractor despite the fact that sub-contractor had gone bust.
The court discovered that the sub-contractor held professional indemnity insurance which may back up the warranty.
A collateral warranty is an additional contract which enables one party to pursue a claim in contract against a third party – in this case the insolvent sub-contractor.
The case involves developer, Liberty Mercian, which appointed Cuddy Civil Engineering to build a retail plateau for a supermarket. Problems arose, leading Liberty Mercian to terminate the contact. It asked Cuddy to provide collateral warranties from its civil engineering sub-contractor, Quantum. Cuddy claimed it could not obtain the warranties as Quantum had gone into liquidation.
Over a number of hearings the court decided that the Cuddy was obliged to use its best endeavours to provide the collateral warranties despite its contact having been terminated. Ultimately the court ordered Cuddy to obtain the warranties. This would require Cuddy to apply to have the dissolution of Quantum reversed so that it could start its own court proceedings against the liquidator to obtain the warranties.
“This decision shows just how far the courts are prepared to go in considering the extent of contractual duties and the equity of a claimant’s case,” said James Burgoyne, Director – Claims & Technical, Brunel Professional Risks. “The judge clearly suspected that the insolvent sub-contractor had sufficient professional indemnity insurance in place to make the order worthwhile. It demonstrates just how important it is that all parties to a construction contact ensure that appropriate contractual and insurance arrangements are in place.”
Liberty Mercian Limited v Cuddy Civil Engineering Limited and others has been reported by Law Now, Designing Buildings Wiki, Building and Gateley Talking Construction.
